HomeBusiness DigestGovt must liberalise gold sector

Govt must liberalise gold sector

WITH Zimbabwe coming under the spotlight for losing an estimated US$1,5 billion through gold smuggling, senior reporter Tinashe Kairiza (TK) this week spoke to the International Crisis Group (ICG) official Anouk Rigterink (AR, pictured) who spoke about the need to match gold producer prices paid by Fidelity Printers and Refiners with the prevailing prices on the international market. ICG recently published a report focusing on gold smuggling titled Turmoil in the Gold Sector. Below are excerpts of the interview:

TK: From your principal findings, you highlight what Mnangagwa’s government must do to curb illicit gold financial flows. Did this trend only start in 2017?
AR: Indeed, one of our recommendations is that the Mnangagwa government curbs illicit gold flows by working with the Reserve Bank of Zimbabwe (RBZ) and Fidelity Printers and Refiners (FPR) to pay gold miners fully in US dollars, at the international gold price minus taxes and reasonable administrative costs.
Illicit financial gold flows are not new to Zimbabwe or 2017, but illicit flows are larger when the gap between the official gold price miners receive from RBZ and the world gold price is larger. The larger this gap, the more can be earned by selling gold illicitly rather than through official channels.
We have seen this prior to 2017. For example, in 2004 the RBZ briefly brought gold prices close to the world price, and an extra nine tonnes of gold were sold through official channels that year. We see the reverse happening in 2018 in Zimbabwe: the gap between the FPR gold price and the world gold price widens, the amount of gold sold through official channels decreases, and illicit gold exports increase.
With regard to illicit exports, we can get a sense of the scale of this by comparing the gap between official Zimbabwe exports of gold to the UAE and official UAE imports of gold from Zimbabwe.
In 2018, over US$200 million worth of gold left Zimbabwe undeclared, but was declared by UAE. And this is just the tip of the iceberg when it comes to undeclared gold exports from Zimbabwe.
This history is exactly why we recommend that Mnangagwa’s government work with RBZ and FPR to pay gold miners at the international gold price (minus taxes and reasonable administrative costs). Experience has taught that this can decrease illicit gold exports and raise official gold deliveries. This strategy will likely pay off, in the sense that it leads to more government gold revenue overall.

TK: You suggest that artisanal miners must be subjected to regulatory authority to mine. As part of your research did you try to identify these unregulated artisanal miners?
AR: Our report suggests that artisanal miners be given rights and obligations under Zimbabwe law. Artisanal mining is a non-violent way to make a living for many Zimbabweans, and we suggest that the law reflect this. Although there are a large number of artisanal miners in Zimbabwe, our reading of the Mines and Minerals Act is that it does not recognise them as a separate class of miners, or make provisions for cooperatives of artisanal miners to hold mining licenses.
As part of our research, we spoke to several artisanal miners. This included artisanal miners who mine without holding a license, and artisanal miners who mined under a tribute arrangement in an area covered by a license of an industrial mining company. The latter arrangement is allowed under the Mines and Minerals act, and one of the prime ways for industrial and artisanal miners to work together.

TK: South Africa features prominently in your report as a preferred destination of smuggled gold, how much does Zimbabwe lose to South Africa through illicit gold flows?
AR: Given existing infrastructure, a logical smuggling route over land would be from Zimbabwe to South Africa, although South Africa is not necessarily the final destination of smuggled gold. It might be transported elsewhere via South Africa. Another smuggling route is via air to Dubai, as illustrated by the recent arrest of Henrietta Rushwaya, who attempted to board a flight to Dubai while carrying gold. Rushwaya denies involvement in any illegal transactions.
Since smuggling is by definition illegal and unregistered, it is difficult to assess exactly how much gold is smuggled. Some estimates in the media of smuggling to South Africa range up to US$1,5 billion per year, but we have no clear way to verify this.
As highlighted above, our own comparison of official Zimbabwe exports of gold to the UAE and official UAE imports of gold from Zimbabwe, suggests there was a gap of over US$200 million between the two in 2018. We expect this to be only a small share of all smuggling that takes place.

TK: You single out Zanu PF as a force perpetuating gold smuggling, how exactly is the political party fueling gold smuggling?
AR: As highlighted above, the main driver of gold smuggling is the gap between the gold price FPR pays and the world gold price. As the FPR gold price is set under the Zanu PF government, it perpetuates smuggling in this sense.
There are also media reports that implicate individual Zanu PF politicians in smuggling, although such rumours are often not investigated so cannot be verified. As the latest example, President Emmerson Mnangagwa’s wife’s name has come up in the investigation into the Rushwaya case mentioned above, although she denies to have had any illegal dealings with Rushwaya.
The Deputy Minister of Mines (Fred Moyo) suggested in 2018 that large mining companies may be involved in gold smuggling. It is possible that large mining companies under-declare their production, not sell their entire production volume to FPR, and export the remainder through unofficial channels. However, whether such under-declaring takes place, or the full extent of such under-declaring has not been established.

TK: You highlight in your report that whoever “controls the gold will control and rule Zimbabwe”, how exactly is President Mnangagwa controlling the gold sector?
AR: We suggest that President Mnangagwa and his government reform the mining sector, as it is one of the few ways they can make good on their promise to revive Zimbabwe’s economy. This includes giving artisanal miners legal standing under the Mines and Minerals Act, working with RBZ and FPR to pay gold miners in US dollars at the world price (minus taxes and reasonable administrative costs), and improve dispute resolution in the mining sector.
This implies Mnangagwa should set aside any political-strategic interests, or, if he does not have any, act to avoid any appearance of having such. For example, Mnangagwa was late to condemn gold-related violence by armed gangs — the so-called Mashurugwi — and late to propose action to tackle this violence. This has led opposition MPs to call Mnangagwa the “Archbishop of MaShurugwi” and to speculation that the MaShurugwi are a pawn in a political powerplay. Zanu PF officials deny this.
Regardless of the truth of this case, artisanal and small-scale miners are numerous in Zimbabwe, and thus an important constituency. Our report shows that, since artisanal miners have little standing under the law and are often unlicensed, they are vulnerable to being manipulated in the interest of politicians. This may take various forms: from artisanal miners beefing up numbers at political rallies to artisanal miners being encouraged to violently invade industrial mining sites. Instead of running the risk of being manipulated, artisanal miners should be allowed to contribute to Zimbabwe’s economy and be given legal status.

TK: You highlight that Sibusiso Moyo is maneuvering to control the gold sector, how exactly is he doing this?
AR: Our report does not suggest this. We suggest Sibusiso Moyo might be a challenger to Mnangagwa for the role of Zanu PF leader in the 2023 elections.

TK: Your report focuses on three mines namely Gaika, Jumbo and Giant. Why did you limit the research to those mines?
AR: Our report focuses on Gaika, Jumbo and Giant mine. We chose these three mines because they have experienced different levels of violence around gold mining: Gaika and Jumbo have been hotspots of violence at times, with large numbers of casualties, whereas Giant has not. We draw lessons from this difference: what was different at Giant that promoted less violence? The three mines also illustrate different drivers of turmoil in the Zimbabwe mining sector.
In short, Jumbo illustrates how inoperative industrial mines in Zimbabwe can become an attractive place for artisanal miners to mine, contributing to a local patronage economy and spike in violence. Gaika illustrates how manipulation of artisanal miners by local politicians can contribute to violence. Giant illustrates that it is possible for artisanal miners to operate peacefully and in accordance with the law, while cooperating with industrial mining companies. However, political interference may spoil such arrangements.

TK: Why do you think gold marketing must be liberalised, considering the strategic value of the mineral?
AR: As highlighted above, Zimbabwe can make more of this strategic mineral, in terms of government revenue, if FPR pays gold miners commensurate with the world price. A gap between the FPR gold price and the world gold price makes smuggling more lucrative, leading to increased smuggling and loss of revenue for the Zimbabwe state coffers.

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